Church and politics are like oil and water; by law, they should be separate. The IRS clearly states that in order for churches to maintain tax-exempt status, the church may not make statements that endorse or oppose a candidate, publish or distribute campaign literature, or make any type of contribution (monetary or otherwise) to a political campaign.
“Many churches have violated this requirement in the past with no adverse consequences. However, the landscape is changing,” Rich Hammar writes in the September/October edition of Church Law & Tax Report. “Recent pronouncements by the IRS suggest that this election year will not be ‘business as usual’.”
Even though history suggests few, if any, consequences for the churches that aggressively intermingle with political candidates, it’s important for church leaders to understand the potential costs of doing so. Loss of a church’s exemption from federal income taxation would have several consequences, including some of the following:
- The church’s net income would be subject to federal income taxation.
- The church’s net income would be subject to state income taxation (except in the few states that do not have an income tax).
- Donors no longer could deduct charitable contributions they make to the church.
- The church would be ineligible to establish or maintain 403(b) tax-sheltered annuities.
- The church could lose its property tax exemption under state law.
- The church could lose its sales tax exemption under state law.
- The church could lose its exemption from unemployment tax under state and federal law.
- Nondiscrimination rules pertaining to various fringe benefits (including an employer’s payment of medical insurance premiums) would apply.
- A minister’s housing allowance may be affected.
- The exempt status of ministers who opted out of Social Security may be affected.